Bank of Thailand suggests only minimal growth this year with a reduced 3.4% growth rate in 2022. Currently, there are fears that Omicron may impede the economy well into the first half of next year including more restrictive access for foreign tourists even as more optimistic reports emerge suggesting that it is up to 70% less likely to cause hospitalisations.
Thailand’s economy, both in the short term and the medium term, now depends primarily on one factor, the extent to which the Omicron virus variant spreading throughout the world causes more severe illness and the potential for disruption to economic activity both within the kingdom and externally. As the government took preemptive action this week by suspending the ‘Test and Go’ entry scheme for foreign tourists, the Bank of Thailand and other analysts are already scaling back projections for 2022 with the current prediction for GDP growth in 2021 being as low as 0.9%.
The Bank of Thailand has already begun scaling back its GDP projections for 2022 as it concedes that the government’s suspension of the more popular ‘Test and Go’ system for incoming tourists is likely to be carried into the first half of next year either with the reopening of the programme with further conditions or a permanent suspension.
‘Test and Go’ accounted for 71% of incoming tourists since the country reopened on November 1st.
Monetary Policy Committee sees inflation on the mild side of fears next year with a projection of 1.7%
The news comes as the Monetary Policy Committee of the bank met and decided to maintain interest rates in Thailand at a historic low of 0.5%.
The committee also judged that the threat from inflation next year was more muted than in western countries and predicted it to be well within the government’s target range of 1% to 3% with a current projection of 1.7%.
The committee felt that short term inflationary pressures particularly from the energy sector and other problems caused by ongoing supply chain disruption were likely to recede in the second half of 2022.
Disappointing growth of 0.9% of GDP for 2021
However, the bank is only predicting the Thai economy to grow by 0.9% for 2021, an extremely disappointing outcome given the massive 6.1% contraction in 2020.
The bank had previously projected a rate of 0.7% but this was tweaked up because of the relative success of the reopening from November 1st up to this week’s suspension of quick access for foreign tourists who must now negotiate the complicated sandbox scheme and face 7 to 10 days quarantine depending on their vaccination status.
A Thai Examiner survey earlier this year showed that such a regime discourages 87% of potential tourists from travelling to Thailand.
2022 growth rate projected at 3.4% with more restrictive access to foreign tourists meaning 1.4 million fewer arrivals primarily in the first 6 months
The bank committee has also downgraded the projected growth rate for 2022 to 3.4% from 3.9% on the basis that the number of foreign tourists was likely to be down by 1.4 million visitors with a total projected level of arrivals set at 5.6 million or roughly 14% of the figure seen in 2019.
This has been attributed to assumed containment efforts at the beginning of 2022 as the government focuses on combating the Omicron threat.
The committee also expressed concern about employment and the labour market.
Public health measures worldwide may curtail worldwide GDP growth particularly in Europe
Even as new information published in the United Kingdom, South Africa and Denmark suggests that the Omicron virus is 50 to 70% less likely to lead to those infected requiring hospitalisation, it is still feared that the more infectious virus strain will lead to wider negative effects on the Thai economy reducing external export demand and also perhaps impacting domestic spending and employment opportunities for Thai households, particularly in the tourism sector.
The bank noted, at its meeting this week, its particular concern at what appears to be a more permanent drop of income for a sizable proportion of Thai households due to the pandemic.
The briefing to reporters on the Monetary Policy Committee’s deliberations was given by secretary Piti Disyatat.
Emphasis now on growth in the second 6 months of 2022 when foreign tourism may rebound although long term recovery for the industry is still far off
He said, in the medium term, the Bank of Thailand committee was looking at a revival of economic fortunes in the second half of next year with some return to normality now only forecast for 2023 although a World Bank report last week only predicted Thailand to achieve 50% of pre-pandemic levels of incoming tourism by then.
Earlier in the week, the rating agency Fitch maintained its BBB+ rating for Thailand and its stable outlook for the kingdom citing the government’s relative prudent management of the country’s finances and cautious approach to borrowing.
Healthy state of Thailand’s external finances has been confirmed by Fitch Ratings with a return to a positive current account predicted in 2022
The healthy fundamentals of the Thai economy were also heralded last week by the World Bank as a potential buffer against inflation.
In its outlook for Thailand, Fitch predicted that the kingdom’s current account would swing back into positive territory in 2022 citing a 0.8% GDP gain compared to a 2% deficit in 2021.
It also predicted this to rise to 2% by 2023.
The announcement was welcomed by Prime Minister Prayut Chan ocha who issued a statement through his spokesman Thanakorn Wangboonkongchana.
Mr Thanakorn noted Fitch’s projection of a 4.5% growth rate for 2022 and a continuation of export growth into next year.
Problems also building in the manufacturing and export sector which has powered the Thai economy in the past two years with foreign tourism decimated
Both these assumptions must be monitored and questioned with the Bank of Thailand’s latest assessment of 3.4% growth in 2022 and a warning from Aat Pisanwanich, the Director of International Trade Studies at the University of the Thai Chamber of Commerce (UTCC), that prospects for export growth in 2022 were also receding.
Mr Aat said it all depended on the impact of the Omicron virus worldwide.
Exports and manufacturing account for 50% of Thailand’s GDP and have been the main engine of the economy for the last two years.
It comes as a slew of studies from South Africa and the United Kingdom that suggest that the Omicron variant may be 50 to 80% less serious on a clinical health basis, than the Delta strain.
Nonetheless, the sheer scale of infection feared is driving containment measures already being put into effect across the world.
Public health experts fear a tidal wave of Omicron infection will overwhelm hospital health services
Public health experts fear that a tidal wave of infection may overwhelm hospitals.
These measures are already impeding economic activity significantly in Europe but very much to a lesser extent in the United States.
Mr Aat also pointed to other challenges such as container shortages with increased demand for freight and rising shipping costs as well as short term supply chain disruption as real challenges being faced by the manufacturing and export sector in Thailand right now as the kingdom gets ready to move into the New Year.
One of these is a new European Union carbon tax that may impact some Thai imports introduced as part of renewed efforts to combat climate change.
UTCC study shows a 70% probability that Thai exports will grow by 5% in 2022 says key executive
He referred to a study undertaken by the university in recent weeks.
‘According to the university’s study, Thai exports have a 70% possibility of increasing by 4.8% next year to $275 billion,’ he revealed. ‘But the projection assumes Omicron infections are not severe.’
The Ministry of Commerce is currently predicting the kingdom to see $269 billion in outward shipments for the first 11 months of 2021 with a significant rise of 16% projected for the full year.
The ministry is estimating a figure of $280 billion in 2022 or an increase of between 3.5% and 4.5%.
RCEP trade deal comes into force on January 1st but may be balanced out by rising US Chinese friction
There are both positive and negative factors to weigh up also as 2022 approaches.
One is the start of the Regional Comprehensive Economic Partnership (RCEP) from January 1st which will be the biggest free-trade pact in the world.
It includes Thailand, China, other ASEAN countries and Japan, South Korea, Australia and New Zealand.
The other is the ratcheting up of tensions and trade hostilities between China and the United States, a factor which has been shown to have a disproportionately negative impact on Thailand’s short term export performance.
Currently, the US Congress has approved the Uighur Forced Labor Prevention Act which will place sanctions on Chinese firms using forced labour linked with the abuse of the Uighur Muslim minority in China.
The law is expected to be signed by US President Joe Biden before the end of the year.
More rail links to Laos and China work both ways
The news comes as Thailand is pushing ahead with the development of its high-speed rail link up with China and infrastructural development in the northeast of the country centred on Udon Thani.
This may be a double-edged sword as the kingdom has also announced more collaboration with Laos including increased rail links and a second bridge in Nong Khai across the Mekong River.
The new Laos-China high-speed rail line connection opened on December 3rd last and is expected to result in stronger imports from China which will increase the kingdom’s already significant deficit with the communist country.